If the time has come where you are either looking to lower your interest rate or planning a major renovation, then it may be a good idea to refinance your home. Before you rush into contacting a local and trustworthy lender, take these few steps into consideration.
Do the Math
At first refinancing may seem like a great idea, but it is important to look at your finances. A simple online calculator can help, but there are other factors that weigh in. Consider the loan term and your age with regards to a future retirement date. You may not want to enter into a 30 year loan if you are closer than that to retirement. There are other options like a 15 year mortgage which may be more suitable. Don’t forget, this will be a higher monthly payment.
Audit Your Credit
Under federal law you are allowed to check your credit report once per year at no cost. The three major credit bureaus are Experian, TransUnion and Equifax and checking your own credit annually will give you a sense of your strengths and weaknesses of your credit. The reports won’t provide you with your actual score, but for a small amount of money you can attain it. Typically eliminating any errors on the report can have a large impact on improving your score.
Prepare Your Finances
Most lenders will want to see that you have plenty of credit available so working on paying down your debt is a good idea. It is also helpful to have savings in the bank for multiple months in the event of a job loss or the like. Even if you don’t have a good amount on reserve, a refinance still can be a good option. Sharing your situation with a lender will help assess what is best.
Estimate Your Home’s Value
Most lenders will want to see that you owe less than 80% of your home’s value. As part of the process, an appraisal will be ordered to confirm a fair market value. First, you may want to get yourself an estimate of what your home is valued at by researching recent sales in your area.
Unless you have an issue with your current lender, they are a good place to start. As they will want to retain your business, they will most likely match the lowest available rates. Be sure to shop around and do your own homework on rates so that you know you are getting the best deal.